Applied Rationality focuses on public policy issues and tries to take a liberal perspective that is consistent (comments to the posts will often show otherwise) with neoclassical, rational-choice economics.

Wednesday, January 12, 2011

Coble against sensible, bipartisan energy standards

The local News & Record reports that Congressman Howard Coble wants to repeal part of the bipartisan energy package that was signed by that old lefty, President Bush, in 2007.

U.S. Rep. Howard Coble is among those urging colleagues in Congress to turn off the lights on a controversial provision of the 2007 energy bill.

The Greensboro Republican is a co-sponsor of a bill to repeal what some refer to — erroneously — as the incandescent bulb ban. Texas Reps. Joe Barton and Michael Burgess and Marsha Blackburn of Tennessee, all Republicans, were the original sponsors of the repeal measure.

The part of the legislation in question raises the efficiency standards for light bulbs by 25 to 30 percent starting in 2012 and further in 2020. The new standards will lower utility bills for consumers, reduce electricity consumption, and reduce pollution, including greenhouse gas emissions.

Shortly after the legislation was enacted, the nonpartisan Congressional Research Service (CRS) estimated that energy-efficient replacements for the now-standard 100-watt incandescent bulb were substantially cheaper when evaluated over the lifetime of the bulb. Although the replacements have higher up-front costs, they cost less to operate and last longer than 100-watt incandescent bulbs. The CRS calculated that the extra up-front cost of an equivalent 70-watt Halogen light used five hours a day at an electricity cost of 10 cents per kilowatt hour would be recovered in four to seven months. A compact fluorescent light (CFL) bulb would recover its extra up-front cost in two to seven months. Thus, the new bulbs are cost-effective.

The bulbs also offer substantial environmental advantages. The CRS report states, "By one projection, the new standards will cumulatively save more than $40 billion on electricity costs and offset about 750 million metric tons of carbon emissions by the year 2030."

What then is the Congressman's objection? The N&R article quotes Rep. Coble as stating it "ought to be a personal decision rather than being an edict from on high."

There's a childish, spiteful "don't tell me what to do even if it's good for me" element to Coble's answer. You can imagine him throwing a similar tantrum when he's served his favorite tapioca pudding without being asked.

"But Howard, tapioca is your favorite."

"Not if you tell me that it is, dammit!"

Rep. Coble's tantrums aside, there is still the question of why a regulation would be needed in the first place if the energy efficient replacements are really such a good deal.

One answer is that consumers may not take the full personal costs and benefits of the bulbs into account when they make their purchases. Consumers see the up-front cost, which is tangible and tied directly to the purchase, but may overlook the operating costs, which will show up in future utility bills and never be tied directly to the bulb. This problem is especially likely to occur in small purchases, where people are more likely to rely on intuition and simple rules of thumb, than in larger purchases.

Another issue, raised by Richard Thaler and Cass Suntein, in their book, Nudge, is that there can be irrational inertia in human behavior. People tend to value losses more strongly than gains (loss aversion); they also exhibit "status quo bias," more readily choosing the old and familiar over the new and different. Again, these biases would lead people away from energy-efficient purchases.

Yet another issue is that to the extent that they do consider costs and benefits, people only consider the costs and benefits that they would personally face. The broader costs of pollution and energy dependence are externalities, which aren't considered in purchase decisions.

The regulation in this case is a relatively modest one. It sets a performance standard but does not dictate that a particular technology be adopted. There are several alternatives to current incandescent bulbs and technological improvements are likely to lead to even more alternatives, including incandescent alternatives. However, the regulation is likely to be very beneficial.